効率的な契約違反—Leaf Invenergy Co. v. Invenergy Renewables LLC, No. 308, 2018 (Del. May 2, 2019)

Limited Delaware case law exists on the “efficient breach” theory. A new Delaware Supreme Court ruling examines that theory and confirms it is not a bar to recovery or an avenue for modifying damages calculations. Rather, efficient breach is the legal concept that a party might find an intentional breach to be economically advantageous if the breach’s benefits exceed the damages it might owe. Efficient breach aside, the task of Delaware courts is to interpret contracts to fulfill parties’ shared expectations at time of contracting. That is a concept the Supreme Court emphasized when reversing the Court of Chancery’s nominal damages award in this case.

Plaintiff Leaf Invenergy Company invested $30 million in Invenergy Wind LLC. As part of the investment, Leaf secured a Consent Provision that prohibited Invenergy from conducting a “Material Partial Sale” without Leaf’s consent, unless Invenergy acquired Leaf’s interest at a premium, referred to as the “Target Multiple.” Several years into the investment, Invenergy closed a $1.8 billion asset sale without first obtaining Leaf’s consent and without redeeming Leaf’s interest at the Target Multiple. Leaf sued in Delaware.

The Court of Chancery determined Invenergy had breached the Consent Provision but that Leaf was not entitled to the Target Multiple. The Court reasoned that the Consent Provision was not an either-or provision, even though, until late in the litigation, both parties had understood a failure to obtain Leaf’s consent would require redemption at the Target Multiple. Instead, the Court reasoned that Leaf was entitled only to nominal damages, given the Court’s view that Invenergy likely would not have made the Material Partial Sale if it had to pay the Target Multiple and that, in any event, Leaf was no worse off with the transaction. Applying the “efficient breach” theory, the Court of Chancery imagined a hypothetical negotiation exercise in which Leaf would have to show that it would have secured additional consideration if given the opportunity to negotiate for its consent. Ultimately, the Court of Chancery ordered the parties to complete a buyout of Leaf’s interests pursuant to a put-call provision in the operative agreement, which Invenergy exercised during the suit.

On appeal, the Supreme Court reversed, explaining that the Consent Provision was an either-or structure requiring Leaf’s consent or payment, as evidenced by the parties’ own longstanding shared interpretation. The Supreme Court also explained the trial court’s misapplication of the efficient breach theory. Centrally, damages are an issue of contractual expectations. Here, the parties’ expectations were that, for a Material Partial Sale to close, Leaf either would give consent or be redeemed at the Target Multiple. Since Leaf did not give its consent, the appropriate expectation damages were receiving the Target Multiple. Accordingly, the Supreme Court reversed the nominal damages award, substituting an award of the Target Multiple, conditioned on Leaf surrendering its membership interests.

 効率的な契約違反に興味がある方で、この判例の研究をしようと思う研究者は、いらっしゃいませんかね。効率的な契約違反についての理論的な論文は、大掛かりなので難しいとしても、どのような点が現実の事案で問題となったのかを法と経済学の観点から(どの程度、裁判官が法と経済学の議論を理解しているのかを含めて)分析すれば、面白いように思えます。

株式買取請求権と株価——Verition Partners v. Aruba Networks, 2019 Del. LEXIS 197 (Del. Apr. 16, 2019)

In this statutory appraisal case, the Court of Chancery found that the fair value of Aruba Networks, Inc., as defined by 8 Del. C. § 262, was $17.13 per share, which was the thirty-day average market price at which its shares traded before the media reported news of the transaction that gave rise to the appellants’ appraisal rights. … Because the Court of Chancery’s decision to use Aruba’s stock price instead of the deal price minus synergies was rooted in an erroneous factual finding that lacked record support, we answer that in the positive and reverse the Court of Chancery’s judgment. On remand, the Court of Chancery shall enter a final judgment for the petitioners awarding them $19.10 per share, which reflects the deal price minus the portion of synergies left with the seller as estimated by the respondent in this case, Aruba. …

Likewise, assuming an efficient market, the unaffected market price and that price as adjusted upward by a competitive bidding process leading to a sale of the entire company was likely to be strong evidence of fair value. By asserting that Dell and DFC “indicate[] that Aruba’s unaffected market price is entitled to substantial weight,” the Vice Chancellor seemed to suggest that this Court signaled in both cases that trading prices should be treated as exclusive indicators of fair value. However, Dell and DFC did not imply that the market price of a stock was necessarily the best estimate of the stock’s so-called fundamental value at any particular time. Rather, they did recognize that when a market was informationally efficient in the sense that “the market’s digestion and assessment of all publicly available information concerning [the Company] [is] quickly impounded into the Company’s stock price,” the market price is likely to be more informative of fundamental value. In fact, Dell’s references to market efficiency focused on informational efficiency—the idea that markets quickly reflect publicly available information and can be a proxy for fair value—not the idea that an informationally efficient market price invariably reflects the company’s fair value in an appraisal or fundamental value in economic terms. Nonetheless, to the extent the Court of Chancery read DFC and Dell as reaffirming the traditional Delaware view, which is accepted in corporate finance, that the price a stock trades at in an efficient market is an important indicator of its economic value that should be given weight, it was correct. And to the extent that the Court of Chancery also read DFC and Dell as reaffirming the view that when that market price is further informed by the efforts of arm’s length buyers of the entire company to learn more through due diligence, involving confidential non-public information, and with the keener incentives of someone considering taking the non-diversifiable risk of buying the entire entity, the price that results from that process is even more likely to be indicative of so-called fundamental value, it was correct. …

Under the semi-strong form of the efficient capital markets hypothesis, the unaffected market price is not assumed to factor in nonpublic information. In this case, however, HP had signed a confidentiality agreement, done exclusive due diligence, gotten access to material nonpublic information, and had a much sharper incentive to engage in price discovery than an ordinary trader because it was seeking to acquire all shares. Moreover, its information base was more current as of the time of the deal than the trading price used by the Vice Chancellor. Compounding these issues was the reality that Aruba was set to release strong earnings that HP knew about in the final negotiations, but that the market did not. As previously noted, Aruba’s stock price jumped 9.7% once those earnings were finally reported to the public. None of these issues were illuminated in the traditional way, and none of them were discussed by the Court of Chancery in a reasoned way in giving exclusive weight to a prior trading price that was $7.54 below what HP agreed to pay, and well below what Aruba had previously argued was fair value. (footnotes omitted)

via Steve Hecht, FT, Opinion, DealLawyers, Alison Frankel, Bloomberg Law, Matt Levine, The Chancery Daily, S&C, Potter Anderson, Morris James, CW&T, Ann Lipton, Baker Botts, PLC, Ropes & Gray, WSG&R, WF&G, Fried Frank, PWRW&G, Francis G.X. Pileggi

株式買取請求権と株価——Verition Partners v. Aruba Networks

 Verition Partners v. Aruba Networks事件は、衡平法裁判所から、最高裁判所に上訴されたのですが、この事件について、Jesse M. Fried先生らがamicus briefを提出しています。

 最高裁での口頭弁論は、2019年3月27日のようです。

 最高裁の判断は、株式買取請求権と株価の関係について考えるいい材料になりそうです。

via Harvard, Harvard, WF&G, Skadden, Cornerstone, Morris James

Akorn, Inc. v. Fresenius—MAE affirmed

The factual record adequately supports the Court of Chancery’s determination, based on its application of precedent such as In re IBP, Inc. Shareholders Litigation and Hexion Specialty Chemicals, Inc. v. Huntsman Corp., that Akorn had suffered a material adverse effect (“MAE”) under § 6.02(c) of the Merger Agreement that excused any obligation on Fresenius’s part to close. (footnotes omitted)

via Business Law Prof Blog

Fried Frank, The Appraisal Landscape: Key Points, Open Issues, and Practice Points

 2017年のデラウェア州最高裁による株式買取請求権に関する2つの事件(DFC GloblとDell)に関する法律事務所のメモランダムです。著者の一人であるScott Luftglass氏とは、Davis Polk時代に一緒に働いたことがあります。典型的な訴訟弁護士で、訴訟弁護士は、事務屋よりも緻密だと感じました。今回の記事もよく纏まっています。

via Harvard

Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 2017 Del. LEXIS 518 (Del. Dec. 14, 2017)

By instructing the court to “take into account all relevant factors” in determining fair value, the statute requires the Court of Chancery to give fair consideration to “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court.” Given that “[e]very company is different; every merger is different,” the appraisal endeavor is “by design, a flexible process.”

This Court has relied on the statutory requirement that the Court of Chancery consider “all relevant factors” to reject requests for the adoption of a presumption that the deal price reflects fair value if certain preconditions are met, [*40] such as when the merger is the product of arm’s-length negotiation and a robust, non-conflicted market check, and where bidders had full information and few, if any, barriers to bid for the deal.

… Further, the Court of Chancery’s analysis ignored the efficient market hypothesis long endorsed by this Court. It teaches that the price produced by an efficient market is generally a more reliable assessment of fair value than the view of a single analyst, especially an expert witness who caters her valuation to the litigation imperatives of a wellheeled client.

… Fair value entails at minimum a price some buyer is willing to pay—not a price at which no class of buyers in the market would pay.

When an asset has few, or no, buyers at the price selected, that is not a sign that the asset is stronger than believed—it is a sign that it is weaker. This fact should give pause to law-trained judges who might attempt to outguess all of these interested economic players with an actual stake in a company’s future. This is especially so here, where the Company worked hard to tell its story over a long time and was the opposite of a standoffish, defensively entrenched target as it approached the sale process free of many deal-protection devices that may prevent selling companies [*73] from attracting the highest bid. Dell was a willing seller, ready to pay for credible buyers to do due diligence, and had a CEO and founder who offered his voting power freely to any topping bidder.

(footnotes omitted)

via Wachtell Lipton

DFC Global Decided

The respondent argues that we should establish, by judicial gloss, a presumption that in certain cases involving arm’s-length mergers, the price of the transaction giving rise to appraisal rights is the best estimate of fair value. We decline to engage in that act of creation, which in our view has no basis in the statutory text, which gives the Court of Chancery in the first instance the discretion to “determine the fair value of the shares” by taking into account “all relevant factors.”

… [W]e do not share DFC’s confidence in our ability to craft, on a general basis, the precise pre-conditions that would be necessary to invoke a presumption of that kind. We also see little need to do so, given the proven record of our Court of Chancery in exercising its discretion to give the deal price predominant, and indeed exclusive weight, when it determines, based on the precise facts before it that led to the transaction, that the deal price is the most reliable evidence of fair value. …

… Although there is no presumption in favor of the deal price, under the conditions found by the Court of Chancery, economic principles suggest that the best evidence of fair value was the deal price, as it resulted from an open process, informed by robust public information, and easy access to deeper, non-public information, in which many parties with an incentive to make a profit had a chance to bid. . .